DEVELOPMENT CHALLENGES
Since acquiring its independence in 1991, Uzbekistan has experienced significant economic growth. Average annual GDP growth was 8.5% between 2006 and 2010. High positive growth was also maintained during the global economic crisis because of the low level of international integration of the financial sector. Uzbekistan has also recently changed status, from “low” to “lower-middle” income country, attaining a GNI per capita of US$1,280 in 2010. Yet the country only has a “medium” Human Development Index (HDI) with a value of 0.641 and is ranked 115th of 187 countries, which stems from several development challenges.
Poverty, inequality, and heavy reliance on remittances
While poverty has decreased nationwide to less than 25%, nearly 75% of the poor population lives in rural areas. A number of factors contribute to rural poverty, including the low quality of agricultural land, the absence of non-agricultural jobs in most rural areas, generally larger sizes of families, and lower access to public goods. Disparities also exist between population groups, with people with disabilities, the unemployed, and people with lower levels of education being more vulnerable to poverty. As an escape from poverty, labour migration increased six times between 2002 and 2006. Remittances sent by migrant workers to their families are an important source of income for many poor households; they constituted an estimated 14.4% of GDP in 2008, but fell sharply during the economic crisis in 2009, thus adversely affecting a large proportion of the population.
Skills gap
With 40% of the population being under 18 years of age, education is crucial for Uzbekistan. The country has high primary and secondary enrolment rates, the latter reaching over 97%, and adult literacy was at 99% in 2009. However, despite some changes taking place in school management, with more opportunities for community participation, education in Uzbekistan still faces significant challenges in terms of access, quality and relevance for the labour market. Concerns persist over access to higher and preschool education, and girls’ school participation is lower than that of boys, especially in rural areas. In terms of quality, teachers’ skills need improvement and infrastructure requires upgrading. Moreover, curricula are not aligned with the professional and qualification-based requirements of employers, resulting in a gap between workers’ skills and job market needs.
Weak governance and public administration
Another challenge faced by Uzbekistan is in its public administration system. Incentive structures require review, decision-making and control are centralized, and delineation of functions between governance levels is unclear. Poor governance leads to an opaque environment, creating room for rent-seeking behaviour that hinders social service delivery and policy efficiency. There is therefore a need to strengthen local decision-making mechanisms to ensure that they can effectively respond and be accountable to their constituencies.
KEY TRADE ISSUES
Weak competitiveness and low productive capacity
Although Uzbekistan has the most diversified economy in Central Asia, and despite national programmes to develop local manufacturing and increase value-added, the range of internationally competitive products is small, and their value-added is low, due to the weak productive capacity of enterprises in non-resource sectors. The country relies mainly on the extraction or production of natural resources, including cotton, gold, uranium, potassium and natural gas. In 2009, the main exported products were hydrocarbons, electricity and coal (28.5%), cotton (14.3%), metal compounds and chemicals (11.1%), and copper (6.7%). Moreover, existing trade support institutions (TSIs) in the country have limited capacities to provide the services necessary for enterprises, in particular SMEs, to increase their international competitiveness.
Market concentration and WTO accession
Similarly, the country’s main trading partners for a wide range of goods are the CIS countries, led by the Russian Federation. Other important markets in 2009 included Afghanistan (24.1%), Turkey (11.4%) and China (9.6%). Economic concentration renders Uzbekistan’s economy vulnerable to sudden fluctuations in commodity prices and the economic situations in partner economies. There is a need to finalize the WTO accession process (which began in 1994), in order for the country to become better integrated into the world economy and diversify its market destinations.
Cumbersome regulatory and business environment
The country’s business environment is one of the world’s most cumbersome: on the World Bank’s “ease of doing business” indicator, Uzbekistan was ranked 166th of 183 economies in 2012. Administrative procedures and regulations linked to cross-border trade are particularly time-consuming, complicated and costly. In fact, Uzbekistan is one of the top ten most difficult countries in obtaining customs clearances, and the cost of exporting a container from Uzbekistan is US$3,150. Currency regulations, including the system for receiving and making payments in foreign currency and the time limits for foreign exchange operations, make export/import even more complex. As a result, the country is in last place of 183 countries in terms of “trading across borders”.
Limited access to finance
Central Asia is becoming an increasingly attractive destination for foreign direct investment (FDI), with FDI inflows to Uzbekistan amounting to 2% of GDP in 2010. Nevertheless, access to trade finance remains limited, especially for SMEs, due to high interest rates and collateral requirements, underdeveloped guarantee schemes, and limited diversification of financial products. Moreover, interest rates for external financing are particular high because Uzbekistan is high on the OECD Country Risk Classification scale (rated 6 out of 7), which indicates a high risk to service its external debt. Therefore FDI remains concentrated in the less-risky energy and mineral sectors.
Underdeveloped physical and quality infrastructure
Uzbekistan has a double-landlocked geography and is located far from seaports. This remoteness creates a physical obstacle to the exchange of goods, raises transport costs, limits access to world markets, and reduces the country’s export competitiveness. Despite some progress in the improvement of transport infrastructure, in particular roads and railways, the construction, maintenance and operation of connections with neighbouring countries require simplification, enhancement and harmonization. Similarly, recently issued decrees aim to ensure alignment of technical regulations with international norms; however, further work is required to provide enterprises with internationally recognized means to ensure and demonstrate the conformity of their products and procedures with client requirements.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for Uzbekistan 2010-2015; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2010 UNDP Aid for Trade Regional Review for the Countries of the United Nations’ Special Programme for the Economies of Central Asia (SPECA): Trade and Human Development; and the 2011 OECD report on “Central Asia Competitiveness Outlook”.